The Housing Bubble

Zillow notified me via email that my house dropped in value by $14,000 0r 3% in the past month.

We all used to regular trash Zillow, but we all secretly (IMHO) hoped for truth vs. Suzanne.

Have we come somewhere in between? Do we have any newer and more credible sources?

May I rant this morning? Thank you!

The same folks who didn’t see the housing crisis brewing are the same folks who didn’t see the recession coming are the same folks who swear that growth is returning. As a devoted reader/contributor to this blog I expected all of these things and more as the education I received here taught me a lot about causality and the fallacies that seem to govern modern economic thought (ie too big to fail, can’t happen here, etc).

With that, I must claim that as the government began spending its billions to lift us out of recession the first thought I had was “they’re going to propel us into a double-dip unless they clear out all of the dead wood”. Lo and behold what’s the chatter now? If private enterprise doesn’t jump on board soon and if consumers don’t start spending, we’re facing a double dip recession! Hell, even Maria “I never met a banker I didn’t like” Bartiromo is on board with this.

As long as all of this funny money is printed and injected and the banks aren’t allowed to fail in order to clear out of all of the toxic loans, MBS’s, toxic derivatives, etc then what was the point of all of this spending? Please don’t think that this is just a US phenomena. The Brits and European governments are the doing their fair share to try and prop this all up.

The end result is that this will all end badly. Maybe even worse than it would have been if they would have just let the chips fall and start from the beginning. No possibility of a double-dip indeed

How do you make a dear realtor float?

One scoop of ice cream, and one scoop of dead realtor

And for those of us on the unemployed front……

Guy goes to the doctor, says “Doc, I’ve got a real problem I have to show you.” Guy drops trou, and his junk is orange!!

Doc says, “Man……. I’ve never seen anything like that before……” Doc orders a whole battery of tests….(the guy still has insurance). Everything comes back negative.

Doc calls him in, tells him the tests are negative. Says “We are wondering if you have been exposed to radiation, or hazardous chemicals?”

Guy says, “No……in fact I’ve been unemployed for the past eight months.”

Doc says, “Well, what have you been doing to keep yourself out of trouble?”

The guy says, “Not a whole lot…..just surfing for Internet porn, and eating Cheetos…….”

http://news.yahoo.com/s/ap/20090929/ap_on_go_ot/us_census_income_gap_2

“Household income declined across all groups, but at sharper percentage levels for middle-income and poor Americans. Median income fell last year from $52,163 to $50,303, wiping out a decade’s worth of gains to hit the lowest level since 1997.”

Enough said on that… wages & housing prices… it’s about damn time Congress woke up and realized that you cannnot legislate your way out maintaining this relationship, or you will end up exactly where we did in 2007… period.. end of story… period..

Wake the hell up Barney Boy and Chrissy Dodd ,and pull your head out… Phill Gramm remains public enemey #1 or #2 with Greenspan running a close second..

Recession chips away at granite kitchen tops
The Atlanta Journal-Constitution

Not long ago, it was a home-improvement rule seemingly set in stone: a new or upgraded kitchen had to have granite countertops.

The more granite counter space, the better. Real estate agents steered clear of homes without them. A lot of home sales hinged on the sleek sheets of stone. Home-improvement chains couldn’t keep them in stock. Interior designers thought only in granite when it came to kitchen design.

“Granite was a prestigious statement for building,” said interior designer to the stars Jim Weinberg of Atlanta.

Now, 21 months into this recession, granite countertops are relics of a fizzled-out housing boom. Granite varies by market, and it has dropped in price, but it still can be pretty expensive. Here in metro Atlanta, with granite priced at $25 to $75 a square foot, insisting on it in the time of recession seems impractical.

Construction of new homes has fallen off so much that were it not for renovation work, many construction firms would be in danger of closing. And even that work isn’t as promising: Home values in metro Atlanta have fallen more than 11 percent in the last year, according to real estate Web site zillow.com. And many homeowners owe more than their home is worth, making home improvement projects at this point moot.

Quarries that mined the more exotic granite have shut down or curtailed production drastically.

Home improvement chains, such as Home Depot and Lowe’s, are offering lesser-priced alternatives, such as concrete, solid wood and laminates, as well as a “best-value granite” that costs a little less for customers who want to fix up their kitchens. Many of the alternatives cost 10 percent to 15 percent less than granite.

“We knew people were more value conscious. So we worked really hard to find ways to give them more for their money,” said Home Depot spokesman Stephen Holmes.

Styles, colors and surfaces of some of the granite alternatives are “pretty amazing,” Holmes said.

At a distance, he said, the alternatives “can look pretty much like stone or another solid countertop.”

The lower-priced countertops can serve as quick kitchen facelifts for investors who have bought foreclosed properties.

FDIC likely will require banks to prepay $36 billion fees to replenish deposit insurance fund. September 29, 2009

WASHINGTON (AP) — Looking to shore up the diminishing fund that insures bank deposits, the FDIC may take the unprecedented step of requiring banks to prepay three years’ worth of premiums: about $36 billion.

The insurance fund has been sapped by billions from a rash of bank failures that began in mid-2008. The board of the Federal Deposit Insurance Corp. likely will call for “prepaid” bank insurance premiums at its public meeting Tuesday to discuss the issue, three industry executives and a government official said. The banking industry prefers that option over a special emergency fee — which would be the second this year.

The executives and the official spoke on condition of anonymity Monday because the decision had yet to be made public.

It would be the first time the FDIC has required prepaid insurance fees. Under the plan, banks would have to pay in advance their insurance premiums for 2010-2012, bringing in about $12 billion for each of the three years, two of the executives said. That is the normal amount of insurance fees, though it could vary somewhat according to growth in total insured deposits — the basis for determining the fees.

Sept. 29 (Bloomberg) — Former Federal Reserve chairman Paul Volcker said the rise of China and other emerging economies has underscored a decline in the comparative economic and intellectual leadership of the U.S.

“I don’t know how we accommodate ourselves to it,” Volcker, an economic adviser to President Barack Obama, said in an interview with PBS’s Charlie Rose taped yesterday in New York. “You cannot be dependent upon these countries for three to four trillion dollars of your debt and think that they’re going to be passive observers of whatever you do.”

The former Fed chairman also said unemployment at 9.7 percent will slow the pace of recovery from the U.S. recession as consumers default on mortgages and consumer loans. Moreover, commercial real estate loans are likely to cause further losses for lenders.

“This recovery will be slower,” he said. “We can’t just pump up consumption and pump up housing again.”

Group of 20 leaders, meeting in Pittsburgh last week, announced plans for more durable economic growth, including reducing U.S. dependence on overseas capital and cutting the reliance of emerging nations such as China on exports.

World leaders decided that the G-20, which includes emerging economies such as China and Brazil, will replace the Group of Eight as the main forum for global economic coordination. The shift illustrates how the excesses that led to the financial crisis have compelled industrial nations to share governance of the world economy.

Less Dominant

The growth of emerging economies is “symbolic of the relative, less dominant position the United States has, not just in the economy but in leadership, intellectual and otherwise,” Volcker said.

RV sales increasing? “Industry officials attribute the rebound to improved credit for dealers and consumers, low dealer inventories and stable gas prices. The big driver is rising buyer sentiment, which could augur more robust retail sales than predicted.

“It would suggest the worst of the (stock market) decline seems to be over, and the consumer is in a position to come back,” says Indiana economist Morton Marcus, who studies the RV market.”

Could it be displaced or retiring populace are going gypsy because they can’t afford a house or to be stuck in a high priced, low job area?

From yesterday: CA-ians are paying on average 0.57 cents more per gallon of gas because of mandated blending. Gas here in Salinas has been $3.09 a gallon but just yesterday after the news hit it was lowered to $2.97.

It’s about the incomes stoopid!

According to the U.S. Census median household income in my state (IL) dropped from $60,203 in 2000 to $56,235 in 2008.

In that same period the housing stock that I follow (urban condos) has doubled and tripled in price. Heck, in my tier alone prices went from ~$42,000 in 1999 to ~$125,000 in 2007!

Yeah, no bubble in the Midwest, no bubble at all. Good luck levitating those prices in an environment of falling wages you DC stooges!

One instance of the denial breaking down-

A REIC believing carpenter (wise and full of common sense, missing some analytical skills) I’ve conversed with for a year now said yesterday, “yea…. $100k houses in 2000 going for $300k in 2005? Something is definitely wrong”.

This tells me the market must be falling apart back in his neck of the woods (Binghamton).

Here is some good news

School is 100% over capacity and students are desperate to get in:

http://www.nytimes.com/2009/09/29/nyregion/29crowded.html?hpw

Like DUH….maybe they demand high standards…ya think?

Wouldn’t that be a good role model for our teachers unions?

The “recoveryless recovery” continues…

Hello all-
I don’t see any drops in the stock market. Just looked at China and India and their stocks are also at pretty high. My question is where do I park the money. RE may take 2-3 more years to settle down. Stocks seem overvalued. Banks don’t give anything in interest.

Now people are talking about dollar being crushed. Is our cash going to be worthless or worth less.

HB

The Mortgage Machine backfires! Apologies if this has been posted before, but it’s a fascinating turn of events. I had no idea about this registration/loan tracking system. And whaddya know? It’s privately owned!

http://www.nytimes.com/2009/09/27/business/27gret.html?_r=1

I lived in Mt Pleasant SC..

http://www.postandcourier.com/news/2009/sep/29/nations-best/

Everyone but Beckham knew the real reason for the gathering — the announcement that she had won the 2010 National High School Principal of the Year award from the National Association of Secondary School Principals.

Wando High School with an enrollment of more than 3000 students is located on a 100 acre campus in Mount Pleasant,South Carolina. Wando High School serves studentsin grades 9 - 12 with a comprehensive academic programoffering more than 250 courses. Thirty-nine percent ofthe student body is identified as gifted and talented.

The student population is approximately 76% White, 19% African-American, 2% Hispanic,and 3% other. The average student teacher ratio
is 23:1.

Instead of a 16 year old on 2 year probation, and arrested for the murder of darrion Albert in Chicago

http://cbs2chicago.com/local/derrion.albert.investigation.2.1212436.html

Merger and acquisition news. I’ll post links in a moment.

Reuters reports that the FTC is thinking of taking a harder line on trustbusting. The HHI is a formula which determines if market share is too dominated by too few companies.

——–
By Diane Bartz. WASHINGTON, Sept 22, [updated yesterday] (Reuters) - U.S. antitrust enforcers plan to revamp merger guidelines, amid expectations that the Obama administration will give corporate combinations a tougher review…

The corporate community has been bracing for the Obama administration to be tougher than its Republican predecessor in assessing mergers and the actions of companies that dominate their markets…

In her remarks to the conference, Christine Varney, assistant attorney general in charge of the department’s Antitrust Division, seemed interested in the re-adoption of the Herfindahl-Hirschman Index, or HHI, a way to calculate a market’s concentration. HHI has not been used in years, she said.

David Balto, a former FTC policy director, said the re-adoption of HHI could mean regulators would challenge a lot more mergers.
———-

Then last night on PBS Nightly Business Report, I heard this:

———-
Monday, September 28, 2009 SUSIE GHARIB: A flurry of mergers and deals today from some of the nation’s largest companies. Xerox, Abbott Labs, Johnson & Johnson and others announced transactions totally over $13 billion.
———-

Rumors of new trustbusting followed by a “flurry” of mergers. Co-inky-dink? I think not.

NBR Susie also interviewed the new CEO of Xerox:
———-
GHARIB: As companies become more vertically integrated from hardware to software to services, does this create new conflicts and new issues for your customers? How are you going to address that?

BURNS: Actually, our customers — we don’t think that actually creates conflict at all. It actually helps them to be a — to go to one person. We call it sometimes one throat to choke. They can come to one person and get a whole vertical slice of a business taken care of, but most of the solutions’ complexity comes in when you try to do a solution on a horizontal basis.
———–

Ms. Burns didn’t say “one stop shopping.” She said “one throat to choke.” True colors shining through. And she as much admitted that she is aiming for a vertical monopoly.

The Government is the Mortgage Market
by Michael Pento, Delta Global Advisors, Inc. September 28, 2009

The Wall Street Journal reported that the FHA’s reserve fund dropped from 6.4% in 2007 to about 3% today, putting it dangerously close to its mandated 2% minimum. And according to The Washington Post, nearly 90% of all new home loans are funded by the taxpayer up from 30% just four years ago.

So what have we learned from relying upon; The Community Reinvestment act, Congress, White House, FED, FHA, GSEs, Ginnie Mae, VA…etc.? The answer is how to better manipulate the real estate market while placing the tax payers further in jeopardy. Not only are we on the hook for a staggering amount of government mortgage guarantees, but the taxpayers are also expected to live up to their pledge to back the Federal Deposit Insurance Corp. (FDIC), which will now be responsible for bailing out banks whose FHA-MBS have become a bigger portion of their assets.

The linchpin for the economy and the stock market is real estate values. If they continue to drop, banks will fail at an even greater rate and there can be no healing for the consumer either. But the government now has an increased interest in propping up home prices because they own or guarantee a significant portion of real estate-based investments.

This makes the exit strategy for the Fed in removing excess liquidity extremely difficult and greatly conflicted. Here is what Fed Governor Kevin Warsh said in a September 25th Wall Street Journal opinion piece, “Nonetheless, I would hazard the view that prudent risk management indicates that policy likely will need to begin normalization before it is obvious that it is necessary, possibly with greater force than is customary, and taking proper account of the policies being instituted by other authorities.” However if they actually raised interest rates aggressively, it would severely erode the value of those MBS held by the Fed while greatly increasing the costs associated with owning a home. Concurrently, it would also dampen the demand for real estate purchases.

The result would be; increased rate of bank failures, a lower stock market, lower home prices, higher unemployment rates and another severe recession—which will most likely be much worse than one we are hopefully coming out of. Given that scenario, one has to ask themselves how credible and politically palatable such a strategy of aggressive interest rate hikes really can be.

But the greater question that needs to be asked and answered is why the government believes the rate of real estate ownership needs to be controlled in the first place? While it may be true that home ownership makes for a better community, it remains out of reach for a certain percentage of individuals. By forcing ownership on those who cannot afford a home, government creates distortions and imbalances that cause huge dislocations in the economy.

It is up to the market to decide the percentage of people who should rent and those who should buy. It is the market who is the arbiter for how much capital should be allocated to real estate.

Meanwhile, if the government still feels compelled to control markets, why not seek to boost the productive capacity of our economy and rebuild the country’s manufacturing base. Instead of backing policies that simply reward more consumption and debt.

Just let the homebuyer tax credit die
It didn’t help sales much and it’s just prolonging a real recovery

http://www.msnbc.msn.com/id/33059733/

“Extending the credit and expanding its scope is a bad idea on multiple levels. For starters, let’s look at the program’s return on investment. According to the IRS, 1.4 million homes have been bought since the credit’s inception; the National Association of Realtors gives a somewhat higher figure of 1.8 million to 2 million. (Either way, the program is already going to cost about $15 billion if it winds down as planned, according to the Associated Press .) And yet, according to the NAR’s own math , the tax credit was the make-or-break factor in only 350,000 of those sales. The National Association of Homebuilders, another industry group lobbying to extend the credit, places this figure even lower, at 150,000 . In other words, the vast majority of homebuyers would have signed on the dotted line even without the government’s incentive.

At best, the homebuyer tax credit was a moderately effective crutch at a time when the residential real estate market needed it most. Take that crutch away come November and the market’s still going to limp for a while. But the alternative means prolonging that healing process and, ultimately, recovery.”

Just finished perusing the Dataquick August figures for Los Angeles and San Diego. Los Angeles is still outrageously overpriced. Looks like the only area approaching affordability is North Hollywood, other than the ‘hood. $1000 per square foot in Santa Monica. I would move - doesn’t look like the better neighborhoods will ever fall. Maybe there are too few of them.

San Diego numbers look more hopeful.

Are developed country central banks in full cooperation now with respect to stock market stimulus? I only ask this because the big upside movements in even the so-called Global Dow now seem to occur in tandem with headline US stock index movements.

One of the HBB’s favorite ‘experts’ tries his best to explain why the gubmint needs to intervene so heavily in the mortgage market. He promulgates the false notion that the lending market would shut down without government intervention, as banks are too scared to make loans at the moment.

As to the notion that “fewer people would own homes,” I note that US foreclosures were occurring at over a 4m annualized rate this summer. Many of those cases involve the result of people encouraged to purchase homes they could not afford, no doubt in many cases thanks to the help of “affordable housing” programs like the one described in the article linked below.

Monday, September 28, 2009

Housing programs may get gov’t boost
Nicolas Retsinas

The White House is considering injecting $35 billion into state and local housing programs. Why? Housing economist Nicolas Retsinas talks with Kai Ryssdal.
…
RETSINAS: To put this in context, in the third quarter this year, 90 percent of all residential mortgages in the United States were touched by the government. Either insured, guaranteed, securitized. So this is just one more step where government de facto becomes the housing finance market of the United States.

Ryssdal: Well, let me ask you this then, as the government is pulling back on some of its other bailout mechanisms, the Federal Reserve, and TARP is being paid back, the government is still very heavily into the housing market is what you’re saying.

RETSINAS: Very much so. The Federal Reserve, for example, announced that it’s going to continue its purchase of mortgage-backed securities, which they’ve purchased over $800 billion so far, with a target of over $1.25 trillion, so they’re still very much involved. And the question would be if they weren’t involved what would happen in the housing market?

Ryssdal: Well one thing that might happen is that fewer people would own homes. Is that reasonable?

RETSINAS: Fewer people would own homes because credit would be tighter, the interest rate would be higher, down-payments requirements would be higher, all of which would lead to fewer perspective buyers. There are already too few buyers now for a functioning housing market in a country our size. This would further tighten those credit markets.
…

Connecticut’s Poverty-Rate Increase Led U.S. States Last Year

Sept. 29 (Bloomberg) — Connecticut led increases in poverty among eight U.S. states where rates rose in 2008, the first full year of the recession, a government report showed.

The proportion of Connecticut residents living in poverty rose by 1.4 percentage points to 9.3 percent, the Census Bureau said in a report released today in Washington. Florida and Hawaii were next with increases of 1.1 percentage points each, followed by California with a 0.9 point gain.

Connecticut’s proximity to Wall Street, the epicenter of the worst financial crisis since the Great Depression, contributed to the jump in poverty as spending cuts by bankers living in the suburbs of New York affected wage earners, said William Frey, a demographer at the Brookings Institution in Washington.

“People don’t go from being a CEO or a hedge fund manager into poverty, but there is a trickle-down effect when these groups of people start to cut back on their spending,” Frey said in an interview. “In many places, the first people to go when things get tight are the lowest-earning workers.”

California’s poverty rate last year rose to 13.3 percent, and Florida’s increased to 13.2 percent. In Hawaii, it rose to 9.1 percent. The other states with statistically significant increases in poverty rates were Indiana, Michigan, Oregon and Pennsylvania.

The credit crisis triggered by the collapse of Lehman Brothers Holdings Inc. has decimated employment on Wall Street.

New York City’s seasonably adjusted unemployment rate jumped to 10.3 percent in August, the highest since May 1993, according to the state Labor Department. The city has lost 40,300 jobs in the financial industry since August 2008, an 8.5 percent decline to 432,400 from 472,700.

Question - has anyone seriously looked into the SRS class-action suit? I’m thinking about it, being that I was one that lost some money on it.

Normally I don’t like to take part in such things - but this appears to be a case where there may be real fraud. It appears the fund didn’t act like it should have at all, if it were based what it was advertised to be based on. Though I haven’t looked that deeply (yet).

I know there were others here that did the SRS thing - just wondering if anyone’s looked more deeply than I and can comment on the merit of it.

There are several different firms that have posted suits. (easy to find via google)

If it gets through, this an archive from Automatic Earth that addresses a still curent, and salient point. I apologize for the length, but I don’t know how to tansfer a hyperlink.

Also, (politics) I am neither anything.

Simply want this country to get on the right track.

I jIlargi:

Dear Mr. President,

A funny thing happened to me today. I saw this headline in the Wall Street Journal: “Obama Creates Faith-Based Office”, and I thought: you can say that again, and in fact I often have said it. Then, of course, I read the article, and noted that it wasn‘t talking about the Oval Office -once again- following faith based policy and the ‘Change You Can Believe In’ slogan, but that you had created an actual institution that is supposed to address faith-based initiatives, the White House Office on Faith-Based and Neighborhood Partnerships. In this context, I was amused to read these words from your July 1 ‘08 speech in Ohio:

I believe deeply in separation of church and state, but I don’t believe this partnership will endanger that idea, so long as we follow a few basic principles.
Sounds a bit as if you believe [sic] that faith-based policy initiatives, and that’s what we’re talking about here, don’t violate that separation. A sliding scale built in grey territory, I’m afraid. But then, I realize that in the US people risk being demonized for strictly applying this part of the constitution. The influence of religious leaders on American policies has been so strong for so long that the only options you have are to either change the constitution to have it accurately reflect reality, or to change your perception of reality in order to have it reflect the constitution.

Still, that’s not the reason why my initial reaction was: you can say that again. I thought that because I had read your op-ed piece in the Washington post earlier in the morning, which addresses the urgency you say there is about your recovery plan before Congress:

Because each day we wait to begin the work of turning our economy around, more people lose their jobs, their savings and their homes.
I’m confident you are fully aware that people will lose jobs, savings and homes regardless of your plan, even, that is, if it does work. But let’s focus on another point: What exactly do you mean when you talk about turning our economy around? Am I right to assume you mean getting back onto the same track it was on before? When everyone was borrowing money for cars, homes and toys? The economy that led to negative savings and enormous debts across the land? Or were you thinking of turning around back further in time? The past 8 years? Guess not, right? Nixon years: No. Bush 41: Nah. So Carter or Clinton? Eisenhower? Maybe not. What I mean to say is I suggest you stop using that “turnaround” phrase, it make little sense once you think about it. The country has to go forward, not turn around. And what lies ahead doesn’t seem to look like what was before, unless you want to look at the 1930’s.

And if nothing is done, this recession might linger for years. Our economy will lose 5 million more jobs. Unemployment will approach double digits. Our nation will sink deeper into a crisis that, at some point, we may not be able to reverse.
This recession “might” linger for years no matter what you do. And you know that, sir. If you seek for people to believe in you, saying believable things would be a good place to start from. 5 million jobs lost? There were 589.000 in December, and that number has yet to be revised, which will undoubtedly be upward. At the current rate, 5 million more jobs will be lost by about the end of summer, and 14.5 million over the next two years. And the rate is in all likelihood accelerating. While your plan would create just 3 million. If it works, that is. Jobless claims in January rose to 626.000.

Unemployment has already reached double digits, just look at U6 numbers. Another important point for that believability: get rid of all the cooked government numbers that keep on being showered upon the nation. It’s sort of surprising to see you write that the crisis at one point may no longer be reversible. There’s that idea of the turnaround again. You need to define these things much better, it’s all way too opaque, and you’re not helping yourself. It’s just feel good stuff. For you sir, from now on in, it all comes down to being believable. You’re not. Not if people pay attention.

Then I saw this comment on your article, from AP:

”…. economic stimulus legislation is growing larger by the day in the Senate, where the addition of a new tax break for homebuyers sent the price tag well past $900 billion. “It is time to fix housing first,” Sen. Johnny Isakson, R-Ga., said Wednesday night as the Senate agreed without controversy to add the new tax break to the stimulus measure, at an estimated cost of nearly $19 billion.

Isakson said the new tax break for homebuyers was intended to help revive the housing industry, which has virtually collapsed in the wake of a credit crisis that began last fall. The proposal would allow a tax credit of 10 percent of the value of new or existing residences, up to a $15,000 limit. Current law provides for a $7,500 tax break but only for first-time homebuyers. Isakson’s office said the proposal would cost the government an estimated $19 billion.”
Is this what you mean by turning around the economy? Is it a good idea to push people into mortgages for homes that are quickly losing value, so they can get underwater later this year or in 2010? Are we going to try to save the mortgage, banking and building industries by luring gullible Americans into debts they will not be able to repay? How would you define the lawful role of government in that process? Isn’t it true most independent analysts agree that average US home prices have much further to fall? That just about the only homes that sell are foreclosed ones? That many of the new homeowners this legislation seeks to create will lose their jobs in the near future? That it’s real bad government to willingly create debt traps for one’s own citizens?

Back to your letter:

“This plan is more than a prescription for short-term spending — it’s a strategy for America’s long-term growth and opportunity in areas such as renewable energy, health care and education.”
It’s time to let go of the fallacy of perpetual long term growth. It’s nothing but a harmful mirage which has visited deep and unlimited misery upon peoples and their habitats around the planet. It’s where faith-based systems do real harm.

And it’s a strategy that will be implemented with unprecedented transparency and accountability, so Americans know where their tax dollars are going and how they are being spent.
That one I’ll have to see to believe. So far, I find that impossible. Harry Markopolos yesterday in his testimony on the Securities and Exchange Commission and the Financial Industry Regulatory Authority stated he would give FINRA an “A+ for corruption”, for being in bed with the industry it’s supposed to regulate. He based that conclusion on the time when FINRA was headed by Mary Shapiro, your pick to now chair the SEC, an organization Markopolos accused of gross incompetence. This sort of thing is no longer an incident. Bill Richardson, Tim Geithner (what on earth is he still doing in your administration?), Tom Daschle, the list is growing. Paul Volcker being elbowed aside doesn’t look too good either. You have assembled quite a few clowns around you, and people have seen little accountability. It is already rubbing off on you.

Appointing Harry Markopolos to lead the SEC, as a bright voice today suggests, would be a good first step towards (re-)building the credibility that you are fast losing. He knows the material better than the SEC folks themselves and than the Congressmen who invited him. Throwing out the Rubin, Summers and Geithner cabal is a good second step. Better explaining $900 billion plans to the public follows on its heels. Explaining what lies in the people’s future, in non-ideological or faith-based terms, is a no-brainer.

There is no doubt that London’s bookies have a booming business in wagers on how much longer Gordon Clown will be in office in Britain. Your people are losing patience and faith too, Mr. President. What’ll it be, king or clown?
ust want someone to help our country.

Have TARP funds, that last fall were wrested from the hands of US households against their collective will, been used to fix housing prices at unaffordably high levels? If so, the implicit wealth transfer from poor renters and young households just starting out their lives into the hands of older, wealthier homeowners would make the TARP one of the greatest reverse-Robin-Hood wealth transfer schemes in US history.

One casualty of persistently-overpriced housing: Returning vets are learning that they are priced out, even with the help of VA home loans. Meanwhile, speculators are stepping up to take advantage of government-engineered price increases. All told, the housing market remains FUBAR.

VA home loans see surge in demand
But many veterans feel excluded from market
By Roger Showley
Union-Tribune Staff Writer

2:00 a.m. September 29, 2009

The long-dormant veterans home loan program has surged in popularity in the past year, letting thousands of active and retired military families move from renting to owning.

Nearly 3,700 San Diego military families — almost triple last year’s rate — have used their Veterans Affairs benefits to buy in the past year, as other loans requiring bigger down payments and better credit became less attractive. An increase in the VA loan limit has also brought most homes on the market within reach of military buyers.

But many of the would-be buyers are coming up empty-handed, nudged aside by investors and all-cash buyers and ignored by agents, sellers and bankers who don’t want to work with VA buyers.

Roadblocks to using VA loans include tougher appraisals and closer scrutiny of the properties. While other buyers will take a property in as-is condition, VA loans require repairs to be completed before escrow closes. In addition, VA buyers get their upfront fees repaid if escrow does not close, while other buyers have to absorb such costs.

The upshot is that VA buyers can spend months bidding for affordable homes and lose out.

Many veterans now feel a sense of betrayal. For many, it’s now too late to take advantage of state and federal tax credits, unless they are renewed, and the inventory of attractively priced, foreclosed homes has shrunk, at least for now.

“It’s very frustrating and disheartening,” said Jessica Donigan of Gary Kent Homes & Estates-Re/Max Associates. “I’ve heard a lot of vets say they feel they’re being discriminated against, that it’s not fair.”
…

Monday, September 28, 2009

Is the global economy any safer now?

Joseph Stiglitz, professor at Columbia University, talks with Kai Ryssdal about if our financial system is in worse shape today, a year into the credit crisis, than it was in 2008.

Now the MSM seems worried that people won’t spend enough for Halloween. IIRC, about five years ago Halloween did move into the #2 spot in terms of holiday consumer spending.

And just remember folks, Halloween ain’t a holiday no more, it’s a lingere show! (that’s NOT a complaint, btw)

Rhetorical Tax Evasion
The IRS says it will fine or jail you for not paying Obama’s mandate levy.
SEPTEMBER 29, 2009 - WSJ

President Obama’s effort to deny that his mandate to buy insurance is a tax has taken another thumping, this time from fellow Democrats in the Senate Finance Committee.

Chairman Max Baucus’s bill includes the so-called individual mandate, along with what he calls a $1,900 “excise tax” if you don’t buy health insurance. (It had been as much as $3,800 but Democrats reduced the amount last week to minimize the political sticker shock.) And, lo, it turns out that if you don’t pay that tax, the IRS could punish you with a $25,000 fine or up to a year in jail, or both.

Under questioning last week, Tom Barthold, the chief of staff of the Joint Committee on Taxation, admitted that the individual mandate would become a part of the Internal Revenue Code and that failing to comply “could be criminal, yes, if it were considered an attempt to defraud.” Mr. Barthold noted in a follow-up letter that the willful failure to file would be a simple misdemeanor, punishable by the $25,000 fine or jail time under Section 7203.

So failure to pay the mandate would be enforced like tax evasion, but Mr. Obama still claims it isn’t a tax. “You can’t just make up that language and decide that that’s called a tax increase,” Mr. Obama insisted last week to ABC interviewer George Stephanopoulos. Accusing critics of dishonesty is becoming this President’s default argument, but is Mr. Barthold also part of the plot?

In the 1994 health-care debate, the Congressional Budget Office called the individual mandate “an unprecedented form of federal action.” This is because “The government has never required people to buy any good or service as a condition of lawful residence in the United States.”

This coercion will be even more onerous today because everyone will be forced to buy insurance that the new taxes and regulations of ObamaCare will make far more expensive. Too bad Mr. Obama’s rhetorical tax evasion can’t be punished by the IRS.

Starting Salaries Take a Hit

Deans and admissions officers say students and parents are increasingly viewing the business major as the most practical major in this economy, one that will put them in the best position to land a job after graduation. Increasingly, many who intended to become liberal arts majors are switching gears to business, or double majoring, pursuing a degree in history, for example, at the same time as one in finance, administrators say.

Many of these students are positioning themselves for what they hope will be an economic recovery down the road. However, their confidence in a business degree as the key to jump-starting their careers may be misplaced, especially if they graduate in the next year or two. Business graduates have been as hard hit by the downturn as most majors, a trend that shows no signs of abating, and their salaries are not faring much better. According to a July report from the National Association of Colleges and Employers, the average starting salary for 2009 college graduates with bachelor’s degrees in business increased less than 1%, to $47,239. Some business majors fared especially poorly. Business administration majors saw their salaries sink 2.1%, to $44,944. Meanwhile, economics graduates saw their salaries dip by 1.3%, to $49,829, according to the report.

Even so, business has always been a popular major among undergraduates. In academic year 2006-07, the largest number of bachelor’s degrees conferred was in business (21%),

Incentives have been so warped by the ceo class, outsourcing, and gov policy that we will soon become a country with too many chiefs and not enough indians. Rather than a consumer based economy we can become a committee based economy.

Dealing with the debt. Numbers are from 2008 (Wikipedia).

US Gov’t receipts: 2.66T (2,660B)
US Gov’t spending: 2.90T (2,900B)
spending on interest: 261B
percent of income to service debt: 10%
US Debt load: 10T (implied ave interest rate of 2.6%)

Plan A Assumptions:
1. Gov’t receipts will stay the same at 2.66T
2. Average interest rate will stay at 2.6%
3. Debt load will reach 12T before anything changes, but will go no higher.
4. The government will cut spending to create a 12B surplus which will pay down the debt by 1%.

2,660B (receipts) - 312B (interest on 12T debt) - 12B (targetted surplus) = 2435B Maximum spending

2435B (allowance for congress) / 2900B (2008 spending) = 84%

Congress is allowed to spend 2435B, or 84% of it’s 2008 spending.

Plan B Assumptions

1. Gov’t receipts will stay the same at 2.66T
2. The gov’t will repudiate all of it’s debts.
3. Other spending will not change.

2,660B (receipts) - 2,639B (spending less interest charges) = 21B surpluss

Congress can spend the same in 2008 and will have a small surplus to save for emergencies, which it will need because it won’t be able to borrow.

From PB’s NYT article

The court was unsympathetic. In January 2007, it found that Sovereign’s failure to register its interest with the county clerk barred it from asserting rights to the mortgage after the judgment had been entered. The court also said that even though MERS was named as mortgagee on the second loan, it didn’t have an interest in the underlying property.

By letting the sale stand and by rejecting Sovereign’s argument, the lower court, in essence, rejected MERS’s business model.

Although the Kansas court’s ruling applies only to cases in its jurisdiction, foreclosure experts said it could encourage judges elsewhere to question MERS’s standing in their cases.

All politics is local and it appears that judging is going to be local as well. Those working through MERS’s are not local and I suspect they are about to get their clock clean barring a reversal by the Supreme Court. You can bet the PTB will be plying the halls of justice with stories of armagedon and economic collapse to get these judges to reverse this decision.

Not sure if this was posted the other day or not (apologies if so).

Corus Auction Promises Property ‘Mark’

The government-run auction, with loans backed by more than 100 real-estate developments, is the largest bulk sale of commercial-property assets since the financial crisis erupted. Bidders are looking at some of the highest-profile condo projects in the U.S., scattered from the waterfront Paramount Bay in Miami to Juhl in downtown Las Vegas.

Here’s a key thing:

The Corus transaction is being structured as a partnership between the agency and winning bidder. The FDIC will hold a 60% stake and provide financing, according to people familiar with the matter. While seven other FDIC deals since 2008 have had similar partnership structures, the Corus deal is by far the largest. A similar arrangement was made in last week’s sale of $1.3 billion in residential mortgages to a venture between the FDIC and Residential Credit Solutions Inc., these people said.

Still, the partnerships expose the U.S. to more financial risk than it might face by selling assets completely to private investors. The Corus auction also is complicated by an oversupply of condos in some of the same states where Corus concentrated its lending, such as Florida, California and Nevada.

So now we have yet another government agency getting into the real estate biz, on the taxpayer nut. I’d like to know how in hades these folks can get away with it. As far as I know - long real estate ownership is not within the mandate of the FDIC.

*****TRIVIA CORNER*****

Did you know, that after starring as Eddie Haskell in the immortal “Leave It To Beaver” TV series, U.S. Treasury Secretary TIMOTHY GEITHNER delighted millions as the dashing and daring ninth President of the Federal Reserve Bank of New York? It’s True!

++++AMAZING STAT++++

In 2009, TIMOTHY GEITHNER learned that even Fed Bank Presidents and Treasury Secretaries are expected to pay income taxes, JUST LIKE THE LITTLE PEOPLE!! AMAZING!!

WASHINGTON (Reuters) – The U.S. Federal Reserve on Tuesday proposed tough new credit card rules to protect consumers from potentially costly practices by lenders and moved to implement legislation enacted in May.

“This proposal is another step forward in the Federal Reserve’s efforts to ensure that consumers who rely on credit cards are treated fairly,” said Fed Board Governor Elizabeth Duke said in a statement

And exactly where was the FED over the last 10 years? Could this all be an attempt to ward off congress.

The following are the 75 cities in America with at least 250,000 residents, ranked according to their 2008 poverty rates:

* 1. Detroit, 33.3% in poverty
* 2. Cleveland, 30.5% in poverty
* 3. Buffalo, 30.3% in poverty
* 4. Newark, 26.1% in poverty
* 5. Miami, 25.6% in poverty
* 6. Fresno, 25.5% in poverty
* 7. Cincinnati, 25.1% in poverty
* 8. Toledo, 24.7% in poverty
* 9. El Paso, 24.3% in poverty
* 10. Philadelphia, 24.1% in poverty
* 11. Milwaukee, 23.4% in poverty
* 12. Memphis, 23.1% in poverty
* 13. St. Louis, 22.9% in poverty
* 14. Dallas, 22.6% in poverty
* 14. New Orleans, 22.6% in poverty
* 16. Atlanta, 22.4% in poverty
* 17. Stockton, Calif., 21.6% in poverty
* 18. Minneapolis, 21.3% in poverty
* 19. Pittsburgh, 21.2% in poverty
* 20. Tucson, 20.9% in poverty
* 21. Chicago, 20.6% in poverty
* 22. Columbus, Ohio, 20.1% in poverty
* 23. Long Beach, Calif., 19.8% in poverty
* 24. Houston, 19.5% in poverty
* 25. Los Angeles, 19.4% in poverty
* 26. Baltimore, 19.3% in poverty
* 27. San Antonio, 19.2% in poverty
* 28. Phoenix, 18.9% in poverty
* 29. Boston, 18.7% in poverty
* 30. Denver, 18.4% in poverty
* 30. St. Paul, 18.4% in poverty
* 32. Tulsa, 18.3% in poverty
* 33. New York City, 18.2% in poverty
* 34. Tampa, 17.8% in poverty
* 35. Santa Ana, Calif., 17.6% in poverty
* 36. Nashville, 17.5% in poverty
* 36. Oakland, 17.5% in poverty
* 38. Corpus Christi, Texas, 17.2% in poverty
* 38. Washington, 17.2% in poverty
* 40. Austin, 17.0% in poverty
* 41. Bakersfield, Calif., 16.7% in poverty
* 42. Fort Worth, 16.6% in poverty
* 43. Indianapolis, 16.4% in poverty
* 43. Kansas City, 16.4% in poverty
* 43. Oklahoma City, 16.4% in poverty
* 46. Greensboro, 16.2% in poverty
* 47. Louisville, 16.1% in poverty
* 47. Sacramento, 16.1% in poverty
* 49. Lexington, Ky., 15.6% in poverty
* 50. Aurora, Colo., 15.4% in poverty
* 51. Albuquerque, 15.0% in poverty
* 51. Omaha, 15.0% in poverty
* 53. Portland, Ore., 14.4% in poverty
* 53. San Diego, 14.4% in poverty
* 55. Glendale, Ariz., 14.3% in poverty
* 55. Wichita, 14.3% in poverty
* 57. Fort Wayne, Ind., 13.5% in poverty
* 57. Riverside, Calif., 13.5% in poverty
* 59. Raleigh, 13.3% in poverty
* 60. Anaheim, Calif., 13.1% in poverty
* 61. Las Vegas, 12.6% in poverty
* 62. Charlotte, 12.0% in poverty
* 63. Jacksonville, 11.9% in poverty
* 64. Colorado Springs, 11.8% in poverty
* 64. Lincoln, Neb., 11.8% in poverty
* 66. Mesa, Ariz., 11.7% in poverty
* 67. Seattle, 11.6% in poverty
* 68. Arlington, Texas, 11.3% in poverty
* 69. San Francisco, 11.0% in poverty
* 70. Honolulu, 10.8% in poverty
* 71. San Jose, 8.9% in poverty
* 72. Henderson, Nev., 7.5% in poverty
* 73. Plano, Texas, 6.7% in poverty
* 74. Virginia Beach, 6.5% in poverty
* 75. Anchorage, 6.4% in poverty

Workers’ Porn Surfing Rampant at Federal Agency

Employee misconduct investigations, often involving workers accessing pornography from their government computers, grew sixfold last year inside the taxpayer-funded foundation that doles out billions of dollars of scientific research grants, according to budget documents and other records obtained by The Washington Times.

The problems at the National Science Foundation (NSF) were so pervasive they swamped the agency’s inspector general and forced the internal watchdog to cut back on its primary mission of investigating grant fraud and recovering misspent tax dollars.

“To manage this dramatic increase without an increase in staff required us to significantly reduce our efforts to investigate grant fraud,” the inspector general recently told Congress in a budget request. “We anticipate a significant decline in investigative recoveries and prosecutions in coming years as a direct result.”

The budget request doesn’t state the nature or number of the misconduct cases, but records obtained by The Times through the Freedom of Information Act laid bare the extent of the well-publicized porn problem inside the government-backed foundation.

For instance, one senior executive spent at least 331 days looking at pornography on his government computer and chatting online with nude or partially clad women without being detected, the records show.

When finally caught, the NSF official retired. He even offered, among other explanations, a humanitarian defense, suggesting that he frequented the porn sites to provide a living to the poor overseas women. Investigators put the cost to taxpayers of the senior official’s porn surfing at between $13,800 and about $58,000.

from today’s Ft:

Return of the old ways of thinking threatens recovery

We are at the point of maximum confusion in the multi-year transition of the global economy, markets and policymaking. We have left the global growth regime that was driven primarily by debt-financed consumption in the US, but we have not as yet reached a position of more balanced, albeit anaemic, growth. Those who lack a robust anchoring framework, be they investors or policymakers, risk being misled and backtracking to outdated ways of thinking.

The signs of inappropriate reversion are multiplying. Confusing temporary factors for sustainable ones, a growing number of analysts have extended the ongoing stimulus/inventory bounce to a V-like recovery next year and beyond. The momentum for meaningful financial reform is stalling in spite of clear evidence that financial activities have far outpaced the regulatory infrastructure. And some banks are returning to the bad habits that almost destroyed them.

Today’s lack of appropriate anchoring frameworks appears to be exacerbating short-termism. The issue goes well beyond the still-limited appreciation of the multi-year realignment of the global economy, which is gaining momentum. It also relates to tendencies well-documented by behavioural economists – such as framing the problem wrongly and refusing to question past approaches.

Given all this, we would be all well advised to follow the admonition of Mervyn King. Last month, the governor of the Bank of England stated bluntly: “It’s the level, stupid – it’s not the growth rates, it’s the levels that matter here.” Investors have not yet accepted his insight that the absolute levels of income, debt, wealth and unemployment, not just the rates of change, are what matters today. They need to, and soon.

Analysis of key levels in the global economy points to important deviations between desired and actual levels. The outlook for major countries will continue to be driven by the levels of key variables, not their rate of recovery. Consider four examples.

First, consumer indebtedness is still too high relative to income expectations and credit availability, particularly in the US and the UK. This inconsistency will hold back any sustainable bounce in the most important component of aggregate demand.

Second, some banks’ balance sheets are still too geared for the comfort of regulators or their own managers. This will inhibit them from lending to the real economy at a time when certain sectors (such as commercial real estate, but also residential housing) still require significant refinancing, and when consumers need time to work down their excessive debt loads.

Third, unemployment has risen well beyond expectations, and is likely to prove unusually protracted. It will take years for US unemployment to return to its natural rate, even after the natural rate shifted upwards. This will dampen the recovery of consumption and investment, stress social contracts that assume flexible labour markets, and endanger political support for essential structural reforms.

Finally, public debt has grown so rapidly as to spark concerns about future debt dynamics. This would inhibit the effectiveness of future stimulus measures, as well as complicating the formulation of exit strategies. It could also erode the medium-term ability of the US to fund cheaply its large deficits by undermining both the global standing of the dollar as world reserve currency and the attractiveness of US financial markets.

These factors work against the much needed handover from temporary growth impulses (which will bolster growth for the remainder of this year) to the permanent ones needed to sustain above-trend growth in 2010 and beyond. As such, the global economy may find it tough to attain Larry Summers’ “escape velocity” – sufficiently high and sustained growth to propel the US (and the rest of the world) away from the contractionary drag of further debt reduction, risk aversion and reregulation.

These considerations serve to accentuate the inconsistency between market valuations and the reality facing companies and economies. Today’s markets – be they industrial country equities or corporate bonds – have priced in vigorous growth for 2010. Valuations assume companies will be able robustly to grow earnings through higher revenues, not renewed reliance on the cost reductions that have propelled earnings in the past six months. For that, they are depending on what is likely to prove to be an elusive high-growth scenario for 2010.

The longer it takes for investors and the policy consensus to shift to the appropriate analytical framework – one that factors in levels rather than just rates of change – the greater the risk of disappointment in 2010. Mr King’s insight will need to be more widely appreciated if the global economy is to avoid a growth and wealth relapse next year.

Here’s an article about DinOR’s favorite Idaho ski spot, Tamarack…

http://www.idahostatesman.com/newsupdates/story/917655.html

A group of nine Tamarack homeowners has asked state District Judge Patrick Owen to appoint the receiver, saying they have lined up a Mexican real estate company to provide operating funds.

The group, which calls itself the West Mountain Preservation Management Association, filed paperwork Friday indicating that Inmobiliaria Las Fuentes S.A. had agreed to lend $7.9 million “for the operation of the resort from Oct. 1, 2009, through August 30, 2010.”

That’s got to be grim: buying into an expensive resort condo complex only to have the main draw - the ski slopes - closed down due to lack of funds.

U.S. Northeast May Have Coldest Winter in a Decade.

Sept. 28 (Bloomberg) — The U.S. Northeast may have the coldest winter in a decade because of a weak El Nino, a warming current in the Pacific Ocean, according to Matt Rogers, a forecaster at Commodity Weather Group.

“Weak El Ninos are notorious for cold and snowy weather on the Eastern seaboard,” Rogers said in a Bloomberg Television interview from Washington. “About 70 percent to 75 percent of the time a weak El Nino will deliver the goods in terms of above-normal heating demand and cold weather. It’s pretty good odds.”

Warming in the Pacific often means fewer Atlantic hurricanes and higher temperatures in the U.S. Northeast during January, February and March, according to the National Weather Service. El Nino occurs every two to five years, on average, and lasts about 12 months, according to the service.

Hedge-fund managers and other large speculators increased their net-long positions, or bets prices will rise, in New York heating oil futures in the week ended Sep. 22, according to U.S. Commodity Futures Trading Commission data Sept. 25.

“It could be one of the coldest winters, or the coldest, winter of the decade,” Rogers said.

U.S. inventories of distillate fuels, which include heating oil, are at their highest since January 1983, the U.S. Energy Department said Sept. 23. Stockpiles of 170.8 million barrels in the week ended Sept. 18 are 28 percent above the five-year average.

If this housing price inflation keeps up for a few more years, pretty soon lenders will be able to restart the housing ATM machine.

U.S. Economy: Home Prices Increase by Most Since 2005 (Update1)

By Bob Willis and Shobhana Chandra

Sept. 29 (Bloomberg) — Home values in 20 U.S. cities climbed in July by the most in almost four years, helping stem the record plunge in household wealth that’s depressed spending.

The S&P/Case-Shiller home-price index rose 1.2 percent in July from the prior month, the biggest gain since October 2005, the group said today in New York. Another report showed consumer confidence unexpectedly fell in September, while holding above the record low reached earlier this year.

Home values are rebounding as low borrowing costs and government tax credits lift home sales. Combined with rising stock prices, the gains will begin to restore the $13 trillion plunge in net worth caused by the worst financial crisis since the Great Depression, a process that economists such as Brian Bethune say will take years to complete.

Home prices are “a major, major turning point for the economy,” said Bethune, chief financial economist at IHS Global Insight in Lexington, Massachusetts. “We are eating away at the problem of household balance sheets.”
…

RE & Drugs…

2 Men Killed Execution-Style at Mexican Beach Resort

PUERTO VALLARTA, Mexico — Two Canadian men were shot to death execution-style outside an apartment building in the Mexican resort of Puerto Vallarta, authorities said Monday.

Witnesses told police that a gunman approached Gordon Douglas Kendall and Jeffrey Ronald Ivans outside the building they were staying in and shot Kendall, according to Jalisco state prosecutor Guillermo Diaz.

The gunman then chased Ivans to the pool area and shot him. Witnesses said two other gunmen arrived minutes later and repeatedly shot the dead or dying Canadians, Diaz said. The men fled and no arrests have been made.

Diaz said Ivans was carrying a handgun, though he apparently was not able to use it before he was shot. It is unusual for people in Mexico, particularly foreigners, to carry handguns. It was not clear if Ivans had a permit.

Diaz said police have reports that the men were involved in real estate developments in another nearby resort area, Bahia de Banderas.

Investigators have not determined a motive for the killing.

Sgt. Bill Whalen of the Royal Canadian Mounted Police said the service’s organized crime and gang units suspected Kendall and Ivans of being in the drug trade in the Canadian province of British Columbia.

“We were aware of who they were, that they were in Mexico and that they were involved in the drug trade,” said Whalen, an officer in the RCMP’s Combined Forces Special Enforcment Unit.

Whalen said Ivans pleaded guilty in Kamloops, British Columbia, in 2002 to one charge of drug trafficking and was fined $1,000.

British Columbia’s biggest city, Vancouver, has seen a surge in crime since the start of the year. Canadian police say at the root of the increase are drug gangs, with a Mexican cocaine supply line heading north through California to the city.

In Mexico’s Michoacan state, which borders Jalisco, police arrested three federal agents for allegedly passing information to organized crime.

The Public Safety Department said in a statement the three agents, ages 33, 37 and 38, were assigned to the port city of Lazaro Cardenas as part of President Felipe Calderon’s crackdown on organized crime.

One of the officers was carrying $15,000 when arrested and investigators believe it was money received for informing on police operations, it said.

Aren’t you guys happy the government is spending billions upon billions of dollars to keep housing prices unaffordable (tax credits, deductions, exclusions, and FHA banking industry subsidies), and spending billions and billions more to keep people in unaffordable housing (HARP and TARP), and at the same time promising to spend billions and billions more to help poor people buy unaffordable housing(HFA)?

If that’s not an extraordinary popular delusion, I don’t know what is.

Is the U.S. Banking System Insolvent?
Mathematics Suggests It Is:

There are roughly 125 million single-family homes in the US.

Of those, roughly 30% have no mortgage on them at all. This leaves 87.5 million single-family homes with mortgages.

Let us assume the average outstanding balance is $200,000 across the entire set and will take a 40% loss severity. This is less than S&P has estimated for subprime loans and only assumes a roughly 20% market deficiency in the home price (the rest is from legal, rehabilitation and marketing expenses.)

These numbers are, with a high degree of confidence (90%+) low - that is, losses will exceed these estimates, perhaps dramatically so. It is, for example, quite reasonable to believe that due to the concentration of defaults in higher-priced areas (e.g. California and Florida) that the average outstanding balance could be close to double that $200,000 value and the loss due to negative equity higher.

From this we can develop a “cocktail napkin” view of the losses to be taken in home mortgages for single-family homes (remember, this does not include condos, apartment buildings and similar “commercial” paper.)

$200,000 X 40% = $80,000 loss per foreclosure.

87.5 million homes with mortgages X 12.42% = 10,867,500 foreclosures.

10,867,500
x 80,000
=============
$869,400,000,000

or $869 billion in losses remaining in single-family mortgages alone, and this on a very conservative set of assumptions.

What if the average outstanding is higher and negative equity greater than 20% (which is likely)? Losses will almost certainly be well north of a trillion dollars.

The entire banking system and likely The Fed, given the quantity of Fannie and Freddie paper it has been and is “eating”, is insolvent. These facts are why the government is lying - they’re well-aware of the near-zero cure rates and know that these facts mean that the banking industry has nowhere near sufficient capital to withstand these losses without folding like a paper cup getting stomped on by an elephant.

(Remember that these numbers do not include any commercial real estate losses and we have found that banks are frequently over-stating their claimed values for these loans by 50% or more - as was seen with Colonial.)

Care to argue with the math folks?

(From K. Denninger)

Any reason why I should not buy a 4 plex I found in good shape that is $165k and grosses $2400 in rent per month? It is mostly sec 8 tenants so they have very cheap rent with gov subsidies. I read it is difficult to get investment financing but I could do 30% down. Should cash flow, $1000 + per month after repairs and holding costs. Looking for advice.

The Feds are trying to change CC rules and may prohibit creditors issuing a card to anyone under the age of 21 unless the borrower has either the ability to make the required payment, or has the signature of a parent or other co-signer who has the means to do so.

So between that and drinking age rules, why don’t they just make the voting age 21? Its evident that if you are between the ages of 18-21, you truly are not considered an adult (unlike other countries, who put their money where their mouth is in this instance).

If I were that age, I do believe I would start getting really pi**ed off about this BS. Yes I know MADD says that statistically DUIs and accidents are down because of that ruling; but when MADD came into existence, the current laws and education did not exist then. So who knows what the statistics would be today.

Wow. That feels better.

Now let me start on how the rest of the world feels about this country’s penchant for putting jocks on pedastals and allowing morons into universities because they can kick a ball.

A rental property should be near where you live.

If you do purchase, I pass on the advice of the guy who recently helped me rehab my rent house between tenants. He rents to section 8-ers.

His advice: hyper-caulk and seal the bathroom floor so that in the case of leakage, the tenant will be standing in water and will report plumbing problems to you.

SEC Inspector General [IG] says enforcement section broken. In a report late last month the IG detailed how the SEC bungled five investigations of Madoff’s business between June 1992 and last December, when the financier confessed. Top SEC officials have pledged to fix the problems and say they already have made major changes in appearances so that they can continue to hold their phoney-baloney jobs while drawing their pay.

Freddie Mac door-to-door push launched to help delinquent borrowers
Washington Business Journal

A campaign has been launched by Freddie Mac to urge delinquent borrowers to apply for help in getting mortgage loan modifications under the federal Making Home Affordable Program.

The McLean-based government-controlled mortgage buyer has hired Titanium Solutions Inc. to go door-to-door to meet with delinquent borrowers at their homes and help them supply missing information, documents and complete other actions needed to begin their three month trial payment periods loan modifications to avoid losing their homes.

Titanium Solutions will target late-paying borrowers with Freddie Mac-owned mortgages who have not returned letters or phone calls sent by their servicers, or who need to provide additional information or documents to launch their three-month Home Affordable Modification trial periods. Titanium will also help those borrowers who have started their trial periods complete the documentation process to enable them to be converted into final modifications.

“By meeting with our borrowers, one on one, in their homes Titanium Solutions can help them overcome the roadblocks keeping them from starting their Home Affordable Modification trial periods,” said Ingrid Beckles, senior vice president of default asset management at Freddie Mac (NYSE: FRE). “We believe this can give borrowers seeking Home Affordable Modifications the same type of personalized guidance they may have had when they were buying their home or applying for their mortgage.”

Hamilton Sundstrand Lays Off 19 Union Workers.
September 29, 2009

Hamilton Sundstrand laid off 19 union workers Monday, bringing to about 100 this year’s total for union layoffs at the Windsor Locks company, according to the company and the International Association of Machinists and Aerospace Workers.

United Technologies Corp., which owns Hamilton, is in the process of cutting its Connecticut workforce by 1,500 by the end of the year. Worldwide, UTC is cutting 11,600 jobs.

Mark Hebert, president of Machinists Local 743, which represents Hamilton workers, said the company attributed the layoffs to a reduced workload. The affected workers were involved in assembling and testing jet fuel controls, valves, housings and other products. They were dismissed Monday, but will be paid for 10 days and will receive severance pay afterward based on length of service.

Last December Hamilton reduced its Connecticut-based union workforce by 150 through buyouts, Hebert said. Total Machinist employment at Hamilton stands at about 1,035 he said.

This is a depressingly lucid perspective on the housing bailout situation.

Daniel Gross
A Tale of Two Bailouts

It’s not the best of times for housing.
Published Sep 24, 2009
From the magazine issue dated Oct 5, 2009
…
The bad news? While the government has pacified the commercial finance, savings, and plain-vanilla banking sectors, it’s sending reinforcements into the vast, restive region where the trouble began: housing.

After Lehman, the Fed plunged directly into home lending. It pledged to purchase huge quantities of mortgage-backed securities and bonds issued by Fannie Mae and Freddie Mac, the failed mortgage giants. “We’re subsidizing housing more than ever,” says Ken Rogoff, the Harvard economist and co-author of This Time is Different, a fine new history of financial debacles.

The Fed’s portfolio of mortgage-backed securities has risen from zero last year to $685 billion today. If they go bad, guess who pays? And while the subprime industry may sleep with The Sopranos, there’s a new subprime lender in town: the First National Bank of You and Me. During the go-go years, the Federal Housing Authority, the agency that helps lower-income people own homes by purchasing loans made by other lenders, found that its 3 percent down-payment requirement was (absurdly) too stringent. And so it lost market share. In the spring of 2006, the FHA accounted for about 9 percent of mortgages for home purchases, according to the Mortgage Bankers Association. In late August 2009, that figure had risen to 40 percent. Like subprime lenders of old, the FHA lends to people who can’t always make their payments. In the second quarter, about 14.4 percent of the FHA’s loans were at least one month past due. And since the FHA’s cash reserves are already model-thin, it may need its own bailout.

Rogoff points out another reason we should view the glass as half empty. Now that the government has shown the lengths it will go to save bankers from their own mistakes, they’ll have faith that it will do so again in the future. “The subsidy is now permanently in place,” he says. “There’s a sense in which we’re not going to be able to exit from any sector completely.” To use a martial analogy, we might declare partial victory after a surge. But we’re not decommissioning the forces. We’re just pulling them back over the horizon.
…

Suggested reading for fellow sufferers from the Wall Street bailout blues:

It Takes a Pillage: Behind the Bailouts, Bonuses, and Backroom Deals from Washington to Wall Street (Hardcover)
by Nomi Prins

This Time is Different: Eight Centuries of Financial Folly (Hardcover)
by Carmen M. Reinhart and Kenneth Rogoff

Ron Paul is a guest tonight on The Daily Show!

http://articles.moneycentral.msn.com/CollegeAndFamily/RaiseKids/
who-in-the-world-is-middle-class.aspx

“Everybody sort of defines themselves as middle class” in America,
says Steven R. Pressman, a professor of economics and finance at
Monmouth University in West Long Branch, N.J. “Self-perception is
a funny thing.”

The edges of middle-class status may be hard to pin down, but the
importance of those who perceive themselves to be middle class is
impossible to deny. Unlike the poor, they can buy extras. Unlike
the rich, they have to spend much of their income on essentials.
They’re motivated to move up and to protect what they have.

testing.

failed.

who is middle class.
what does it take.

talk amongst yourselves …

The New York Times
Business

Economix
Explaining the Science of Everyday Life
September 29, 2009, 7:23 am

Taxing Banks to Pay for, and Prevent, Future Bailouts
By Edward L. Glaeser
Mary Altaffer/AP

Edward L. Glaeser is an economics professor at Harvard.

Financial market regulation seems dauntingly complex, but conceptually it is no different than an efficient highway toll.

Both public interventions are justified by negative externalities, which occur when one person’s activity adversely impacts other people. On the highways, each driver slows everyone else, and tolls can speed traffic by keeping price-sensitive drivers off the road. In the financial markets, institutional risk-taking creates the risk of failure and federal bailout. The reason to intervene, on either the highways or the Bourse, is to limit the social damage created by people and companies that act without worrying about the costs that they impose upon others.

In the old days, everyone pretended that financial institutions had no federal guarantee other than deposit insurance. Public officials even kept up the fiction that Freddie Mac and Fannie Mae were independent, a pretense belied by the nearly risk-free interest rates that these institutions paid to their lenders. Now we know that Freddie and Fannie and plenty of other institutions were gambling with our money, and that gave them an incentive to take on plenty of extra risk.

The risk of future bailouts makes the case for further regulation, but we can’t design good policies until we know the new rules that will govern those future bailouts. Will the feds backstop everyone or just big banks? Does this guarantee always apply, or just during a downturn big enough so that a bank collapse could destroy the credit system?
…
RULES WERE MADE TO BE BROKEN, PERFESSOR!

No mea culpa!

September 29, 2009
Hoffman blasts bank bailouts but says Obama had no choice

Posted by Rick Pearson at 3:20 p.m.

David Hoffman, a candidate for the Democratic U.S. Senate nomination, said today voters are suffering from a “crisis of trust” in the federal government, due in part to watching the treasury spend billions of dollars propping up banks to help restore the financial system.

But Hoffman told reporters he was not criticizing the bank and investment bail outs used by President Barack Obama’s administration, contending that by the time the new Democratic White House took action, “it was like having a gun to our head as a society” to do something.

Yet Hoffman, a former Chicago city inspector general who is making his first run for public office, said he was impatient with efforts by Democrats in Washington to move forward with accountability and oversight reforms on Wall Street to prevent another financial fiasco.

“Hard working Americans are losing their jobs every day while the federal government spends billions to bailout the banks and saves the jobs of CEOs whose strategy of greed and incompetence led to the meltdown of the financial markets,” Hoffman said.
…

What on God’s earth could “the U.S.” have done to prevent the hijacking of our financial system from within last fall? What was the voter support for the TARP, for instance — something like twenty fooking percent?

OUR POLITICIANS HAVE ABDICATED THEIR RESPONSIBILITY TO AMERICAN VOTERS. AND THE FED AND MEGAGANGBANK, INC HAVE HIJACKED THE FINANCIAL SYSTEM.

U.S. Better Not Make Same Bailout Mistakes Twice
By Steven Russolillo

Celebrating bank bailouts as if they are a substitute for restructuring debt is “a mistake that will haunt us,” John Hussman writes in weekly commentary.

“The best time to panic, in the financial markets, is before everyone else does. Similarly, the best time to consider responses to credit strains is before they surface,” he says. “My sincere hope is that if, and I believe when, financial trouble resurfaces, we will be wise enough as a nation to prevent policy makers like Geithner and Bernanke from making the same bailout mistakes twice, protecting irresponsible lenders, and further burdening the nation with debt in the process.”

Has the stock market gone parabolic again? I keep getting this feeling that the greater fools are getting led to slaughter, but perhaps I am the greater fool here for not jumping in and enjoying the party?

* The Wall Street Journal
* TODAY’S MARKETS
* SEPTEMBER 30, 2009, 8:20 A.M. ET

Jobs Data Rein In Futures

A WALL STREET JOURNAL ONLINE NEWS ROUNDUP

Stock futures surrendered some of Wednesday morning’s early gains after a report showed slightly deeper-than-expected job losses in the private sector last month.

About 75 minutes before the start of trading in New York, futures on the Dow Jones Industrial Average were higher by about 26 points, off earlier highs. S&P 500 and Nasdaq futures also pulled back. Changes in futures don’t always accurately predict early market moves after the opening bell.

A closely watched report from Automatic Data Processing and Macroeconomic Advisors showed private sector employers in the U.S. dropped 254,000 jobs from their payrolls last month, more than the 240,000 jobs decline expected by economists.

Heading into the last trading session of the third quarter, the Dow is up 15.3% for the period, on track for its best quarterly performance since 1998. The Dow also is on track to defy tradition by clocking gains for September, a month in which stocks over the long term have shown an average decline of more than 1%. The average is up 2.6% for the month.
…